Morgan Stanley warns that the AI boom may be cooling down, with Asian tech stocks like Taiwan Semiconductor facing a test. Investors are concerned about the sustainability of AI trading and potential tightening restrictions in the United States, leading to a sell-off in Asian tech stocks. Morgan Stanley advises investors to shift towards essential consumer goods, expecting the Fed to cut interest rates in September. Morgan Stanley has downgraded ratings for Asian and emerging market tech stocks, removing key stocks such as Taiwan Semiconductor. Global AI stocks like NVIDIA are also affected. While not completely abandoning tech stocks, Morgan Stanley believes chip stocks are overheated. Morgan Stanley has removed stocks like Taiwan Semiconductor, SK Hynix, and Tokyo Electron from its recommended list. The decline in these three stocks exceeds 2%
Zhitong Finance APP noted that after Morgan Stanley strategist suggested investors to profit from the artificial intelligence boom, Asian tech stocks are expected to see the most severe sell-off since the early days of the pandemic.
Last week, investors began to worry about the sustainability of the hot AI trades and the possibility of the U.S. tightening restrictions. The Bloomberg Asia Pacific Semiconductor Index fell by 3% on Monday, marking the largest four-day decline since March 2020.
Morgan Stanley tends to shift towards essential consumer goods before the Fed's first rate cut. Morgan Stanley expects the Fed to cut rates in September. The company downgraded the ratings of Asian and emerging market tech stocks to equal weight, while removing key AI chip stocks like Taiwan Semiconductor (TSM.US) from the watchlist.
Lead by Jonathan Garner, the strategists wrote in a report, "It's time to exit now," as tech stocks appear overbought and expensive. "We note that historically, changes in Asian market leadership have occurred before the Fed's first rate cut."
This is the first downgrade of tech stock ratings by Morgan Stanley since upgrading them to neutral in October 2022. Strategists stated that, in contrast, expectations for essential consumer goods by 2026 are "not as stringent" and have "typical defensive characteristics during global economic slowdown," marking the first time in at least five years that the bank has upgraded consumer staples stocks to "neutral."
Last week, the global AI stock frenzy led by NVIDIA (NVDA.US) showed signs of wavering as investors reassessed the potential for further gains amidst the Fed policy shift and the impending U.S. presidential election. This led to a rotation of market laggards including consumer stocks and small caps.
In addition to Taiwan Semiconductor, other stocks removed from Morgan Stanley's important recommendation list include South Korean memory manufacturer SK Hynix and chip equipment maker Tokyo Electron. The declines of these three stocks on Monday all exceeded 2%.
This does not mean that the bank is completely abandoning tech stocks. Morgan Stanley strategists stated that while chip stocks appear particularly overheated, the "upcoming AI smartphone cycle" is a key point worth watching, with Samsung Electronics and iPhone assembler Hon Hai Precision included in their watchlist.
Analysts like Shawn Kim and Charlie Chan wrote in another report, "We are not calling for an 'end of cycle'—but at a time when everyone is focused on shortages and discussing new AI paradigms, it is important not to overlook the normal cyclicality of the semiconductor market."